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Public Finance; Bastable, Charles F.
11 paragraphs found.

The classification most familiar to English readers is that of J. S. Mill, who distinguishes between the 'necessary' and the 'optional' functions of Government. *12 The value of this division is, however, much impaired by his subsequent admission that no employment of state agency can ever be purely optional, as also by the further concessions made in his examination of the limits of laissez faire. The arrangement suggested by Roscher is more in analogy with the case of private outlay, viz., that into (1) necessary, (2) useful, and (3) superfluous or ornamental expenditure, *13 corresponding to the necessaries, decencies, and luxuries of individual consumption. It does not require much acumen to add, that the first head is unavoidable, that there is generally a presumption in favour of the second, while there is always one against the last. The formation of such general categories as the foregoing does not help to solve the real difficulties of the matter. *14 The terms used to describe the groups just mentioned carry with them an already-formed judgment. By placing a particular form of expense under the heading of 'necessary' or of 'ornamental' outlay, we have pronounced an opinion on its merits or demerits. It still remains to settle—and this is by far the most troublesome part of our task—the several items to be placed under each head. In order to meet this difficulty we shall find it necessary to consider the proper functions of the State, and how far it is bound to discharge each and all of those functions under circumstances of financial pressure. One of two possible lines of inquiry may be adopted. Starting from our conception of the State, we may seek to determine the proper sphere of its action, and the amount of its justifiable outlay within that sphere, using either general reasoning or appeals to specific experience as our guide. Or we may prefer to trace the development of public tasks, and endeavour by following their direction in the past to form an estimate of their present position and probable future. It may even be expedient to combine the two courses of inquiry, using each as the corroborator or corrective of the other. Here, as often elsewhere, the historical or inductive method comes in to support and check the conclusions of deduction.


§ 4. The primitive theory of politics, if theory it can be called, accepted the omnipotence of the State as a leading principle. The legislator was to fashion the society in the mould which seemed to him best; the very idea of individual claims had no place in such a doctrine. In its passage through feudalism European Society obtained the idea of private liberty, though, owing to the imperfect state organisation of the period, the effect that might naturally be expected was not produced. The centralised monarchies which succeeded the mediæval system claimed the privilege of regulating individual action in a mode that in some respects recalled classical antiquity. The religious and political struggles of the sixteenth and seventeenth centuries were the result of their undue activity in those domains of human life. Commerce and industry did not assert their right to freedom till a later period. State regulation of industry found its highest expression in the so-called mercantile system of the seventeenth century, and particularly in the administration of Colbert. *15 The reaction against this policy produced the first theory of state action that had an economic basis—the doctrine of laissez faire, or, as it was entitled by Adam Smith, 'the simple and obvious system of natural liberty.' Its rise at the particular time was the result of powerful forces. It is true of humanity that 'it learns truth a word at a time,' so that, as the problem of the sixteenth century had been religious liberty, that of the seventeenth political liberty, *16 it was reserved for the eighteenth century to assert the claims of industrial and commercial liberty. The similarity in general features of these movements is remarkable. Each was the natural reaction against exaggerated pretensions; each perhaps attached too much importance to its special object, but all have profoundly affected European society for good. In examining this earliest scientific theory of the State, it is most desirable to see exactly what its doctrines really were. The common opinion that the advocates of laissez faire were opposed to any state action is dissipated by a study of their writings. They lived in an age of restrictions in which the most pressing work was to get the many hindrances to effectual industrial activity removed. A body of thinkers including Quesnay, Turgot, and Du Pont de Nemours among its members can hardly be said to have been indifferent to the necessary functions of the State. The real bearing of the laissez faire or 'natural liberty' system can be best appreciated by a consideration of the exposition given of it by Adam Smith. In a well-known passage of the Wealth of Nations he has set forth the functions of the ideal State in a manner that leaves no room for mistake as to his views.


The temporary predominance in the domain of political speculation of the laissez faire view is a commonplace of the historians of political economy. *18 We need not repeat the account already given of the different effects produced by the Smithian doctrine on French and English thought. It will suffice to see the operation of newer tendencies, and for this purpose we may pass at once to J. S. Mill. His theory of state action is, in fact, a product, or rather application, of his utilitarianism, and thus we are led to expect what we do in fact find, viz., a close resemblance between his practical proposals and those of Bentham. *19 He declares emphatically that—


This extremely vague and general statement is, however, supplemented by a declaration in favour of laissez faire as a general rule. 'Letting alone, in short, should be the general practice: every departure from it, unless required by some great good, is a certain evil.' *21


Admitting the force of some of the criticisms that have been urged against an exaggerated policy of laissez faire, it seems nevertheless possible to adhere to the substantial truth of the doctrine quoted above from the Wealth of Nations. The real ground for limitation of state functions is not the existence of an abstract rule forbidding various classes of acts. The rule itself is dependent on the results of experience. To the plea that in many cases state intervention would obviate evils to be found under a system of liberty, Adam Smith would reply that the legislator's 'deliberations ought to be governed by general principles, that he must act by rules which in the supposed cases would do more harm than good, and that it is the balance of advantage which needs to be regarded.


Writers of all schools agree in this belief, and so far history and analysis are in accord. The disputable part of state outlay is that which more especially concerns economic and social administration, and even here a good deal of the matter of controversy lies outside the subject of pure finance, and belongs more fitly to economic policy. Some trifling amount may be expended on, say, the promotion of art. The advocate of laissez faire may object to the course as a matter of economic policy, but so far as finance is concerned the smallness of the amount makes it a matter of comparative indifference. The question of public expenditure in its fiscal aspects is best considered in relation to each particular period of society. We may even accept the doctrine of Mill, that 'in the particular circumstances of a given age or nation, there is scarcely anything really important to the general interest, which it may not be desirable, or even necessary, that the government should take upon itself,' *27 while we at the same time remember that Adam Smith's determination of the Sovereign's duties can include these possible cases. Financial theory in its application to the modern state is at all events bound to recognise and indicate clearly the difficulties which extension of state action is likely to produce. The growing budgets of all modern societies have the tendency towards enlarging the sphere of the State as their ultimate cause, and it is important to see that persistence in this policy is certain to lead to embarrassments in financial administration; but the very necessity for discussing this subject compels us to examine the forms of expenditure as they have been, and are, while seeking to indicate what they ought to be.


§ 2. Some of the causes of the great increase in administrative outlay have been noticed when dealing with 'police.' They, however, deserve a more precise statement:—(1) The growth of great centres of population makes organisation and control more necessary; e.g. to employ a body of police to regulate the traffic on a country road would be absurd; in the Strand or Regent Street it is indispensable. The inspection of dwellings in order to prevent overcrowding is another prominent instance. (2) The moral sense of the community stands at a higher point now than it ever previously did, and as a consequence the public power is invoked to remove any evil that shocks public opinion. The legislation as to unseaworthy ships affords an illustration. (3) The democratic movement makes interference with the owners of capital or property generally, as also with large dealers in commodities, acceptable to the holders of political power. (4) The establishment of bodies of officials is carried on so gradually that the total expense entailed by the system is never realised, while the special gain hoped for in each case is distinctly conceived. (5) Finally, the influence of the prevalent political and economic theories should be added. Most cases of actual state regulation would come under the exceptions to laissez faire as discussed by J. S. Mill and H. Sidgwick; they also have been powerfully advocated both in Germany and America on theoretical grounds. It is, therefore, not unreasonable to assume that this tendency of speculative thought has in some degree influenced the conduct of statesmen. *67

For a statement of these causes, Goschen, ' Laissez faire and Government Interference,' Addresses, 59-84.

The circumstances of the case have, it need hardly be said, been profoundly altered since 1776. The United States now afford a remarkable example of the actual working of the policy of laissez faire in respect to religion, *86 and they are imitated by the English colonies. Continental nations show a different set of changes: the 'Established Churches,' with their numerous independent and private funds, have given place to bodies directly chargeable on the State revenues. The 'enlightened absolutism' of the eighteenth century commenced the work of disendowment, which was further carried out by the revolutionary movements since 1789. Later reaction has made the clergy pensioners of the State. As regards the United Kingdom, the American example has, for special reasons, been followed in Ireland, and seems likely to be extended to Great Britain.


§ 4. Finally, we should remark that the State may find itself called on to act in relation to any economic interest of the society that it regulates. There is no strict and universally binding rule that can mark off the area of its action. The protest of laissez faire was directed against the policy of continual interference. The intervention of the public power should, however, be only admitted on clear and definite proof of its advantage. The best safeguard against excessive state action is to be found in insistence on a careful calculation of all the elements entering into each case, and more especially of the financial relations that it necessitates.


§ 4. Though any very large system of state-directed industries is not likely to be a financial success, and is besides open to other weighty objections both social and political, there are some exceptions to the general statement. There is no validity in a plea of laissez faire set up in opposition to special cases of state industry, when it can be shown that the interests of the community will be furthered by interference. The rule of non-intervention is nothing but a generalisation from experience, and holds good so far only as experience supports it. Where special reasons justify the action of the public power there is no ground for objecting to its employment. To avoid the opposite and more dangerous extreme, we should add that the advantageous conduct of certain industries by the State is no argument in favour of extending its activity to other and dissimilar cases. *76